LEGO

TO: Professor Clark Hansen, CEO, AMDP

FROM: Ben Levison

DATE: October 22, 2013

SUBJECT: The LEGO Group Investment Proposal Memo

Terms and Definitions

The triple bottom line is a method of expressing a company’s performance across the related areas of profits, people, and the planet. It was created as a means for investors to look beyond just the financial performance of a firm and see its environmental and social impacts as well.
Corporate social responsibility consists of all the ways that companies manage their ethical, social, and environmental impacts. It is the belief that a firm is responsible for both its decisions and activities and monitoring the impact that they have on the firm’s employees, shareholders, partners, community, customers, and the environment.
A social enterprise is a business that is structured and run like other corporations, but its primary purpose is to improve human, social, and environmental well-being rather than just maximize profits. Social enterprises should not be confused with companies who have created social initiatives solely as an attempt to boost financial profits by exploiting popular trends or through a more favorable company image.
A firm’s carbon footprint is the total impact a firm has on climate change based on the amount of greenhouse gasses that are released from its operations. A carbon footprint is usually measured in either kilograms or tons of CO2 released annually, however it is a good idea to also include measurements on other greenhouse gasses released that year as well (e.g. CH4, N2O, etc.). It is important to reduce carbon footprints in order to combat the harmful effects of climate change including negative health effects as well as rising sea levels and temperatures which are ruining ecosystems and may eventually displace coastal cities.

The LEGO Group Background

The LEGO Group began in the workshop of carpenter Ole Kirk Christiansen in Billund, Denmark in 1932. Although Christiansen originally made wooden toys, in 1947 he expanded operations to also produce plastic toys. In 1949, the company created an early version of its now flagship product LEGO, a hugely successful line of construction toys in which colorful interlocking bricks are assembled to build various objects and characters. LEGO is consistently regarded as the most popular construction toy and is a market leader against competitor products such as Lincoln Logs and Playmobil. The LEGO Group also boasts an impressive financial track record with net profits growing almost 35% from 4.16 billion DKK in 2011 to 5.61 billion DKK in 2012 (Annual Report 2012).

The company is dedicated to creating products which are safe for children, an injury-free workplace for employees, and an environmentally responsible operation. Vigorous analysis is done on each raw material and chemical used to produce LEGO bricks to ensure compliance with both the company’s strict internal safety requirements and each country’s government legislation (e.g. European Union’s Toy Safety Directive). The LEGO Group also values employee well-being and one of the firm’s strategic goals is to be a member of the top ten safest companies to work for by 2015 (“Performance”). The company has also announced that it will introduce smaller boxes later this year which they expect to decrease the organization’s consumption of cardboard boxes by over 4000 tons a year, reducing the amount of cardboard used for LEGO boxes by over 18%. Additionally, this change is expected to decrease the firm’s CO2 emissions from packaging by over 10% (“Smaller Boxes”). This smaller box initiative coincides with the firm’s goal of having operations powered 100% through renewable energy by the year 2020 (“Performance”). Furthermore, the company is working closely with materials suppliers to find environmentally friendly and innovative new ways to build LEGO products. The LEGO Group is actively investigating its usage of fossil fuels in producing its plastic LEGO bricks and has a long-term goal of eventually only using sustainable inputs. The company believes “this is a necessary ambition if we are to stay true to our promise to leave a better world for our children (“Product Safety”).”

Outside Opinions

In an article published by Sustainable Brands, author Bart King talks about the positive impact The LEGO Group and its parent company, Kirkbi A/S, are having on renewable energy. Kirkbi A/S is investing €400 million in exchange for a one-third ownership stake of a 77 turbine wind farm that is currently being built off the coast of Germany. Kirkbi’s stake of the wind farm is expected to produce more power than The LEGO Group’s total energy consumption each year, allowing The LEGO Group to easily meet its 2020 renewable energy goal (King). In addition to this significant investment, The LEGO Group is also committed to increasing its energy efficiency in the short term by at least 5% per year. A recent successful step towards this goal occurred in 2010 when gas consumption was reduced by 17% at the company’s Czech Republic factory after reprogramming the thermostats (King). This reduction was impressively accomplished in the midst of a factory expansion, demonstrating The LEGO Group’s commitment to minimizing its environmental impact.

Danish Responsibility praises The LEGO Group’s innovation in continuously setting new industry standards to reduce environmental harm throughout the company’s supply chain. The LEGO Group believes that innovation and sustainability go hand in hand. The article notes the significant resources that The LEGO Group is investing in the research and selection of its design processes and materials because of the enormous environmental impact that these both have. The company is constantly reevaluating the materials used in its products in order to minimize energy consumption and CO2 emissions, while still producing high quality and safe products. Danish Responsibility also commends LEGO products over other toys for being not only fun, but also educational and helpful in evolving children’s creativity. The article closes by saying, “At the LEGO Group, people fundamentally believe that integrating corporate responsibility into innovation processes is best for business, but their main argument for doing so is not always a question of money (“Innovation”).” This further reinforces the point that although The LEGO Corporation has consistently increased its profitability, the company truly strives to be outstanding across all areas of the triple bottom line.

Why AMDP Should Invest

The LEGO Group has seen tremendous financial success over the past five years, fueled by its significant growth in global sales and margins. In addition, the company is committed to continuously finding ways to minimize any negative environmental impact across all areas of its business. According to The LEGO Group CEO, Jørgen Vig Knudstorp, “This massive investment in wind energy is not a one-off event – it is an integral part of our overall ambition of making a positive impact on the world (King).” Actions such as these are not only important contributors toward improving global environmental changes, they will also result in significant long-term cost reductions for The LEGO Group’s operations. Finally, the firm is committed to protecting its employees, customers, and communities while treating them fairly. The LEGO Group strives to provide clean and safe working conditions for its diversified employee base. The organization uses no harmful materials or components during production and aims to have zero product recalls. An investment in The LEGO Group is certainly a sound financial decision based on the company’s strong history of sales and earnings growth. But an investment in The LEGO Group is also an investment in the future. The company has demonstrated its long-term commitment to maintaining a healthy and safe workplace, providing educational and safe toys and operating with a socially responsible approach to environmental sustainability. The LEGO Group is an excellent example of a company with a focus on the triple bottom line. With its strong corporate social responsibility and outstanding financial results, The LEGO Group is an ideal candidate for an investment from AMDP. The LEGO Group’s historical success will certainly strengthen as the company continues to find and implement new ways to be socially, environmentally, and ethically responsible.

BIBLIOGRAPHY

Berners-Lee, Mike, and Duncan Clark. "What Is a Carbon Footprint?" Web log post. The Guardian. N.p., 4 June 2010. Web. 5 Oct. 2013.

"Defining Corporate Social Responsibility." Corporate Social Responsibility Initiative. Harvard Kennedy School, 2008. Web. 5 Oct. 2013.

"Innovation and Sustainability in LEGO Create Consumer Confidence." Danish Responsibility. Danish Ministry of Business and Growth, n.d. Web. 5 Oct. 2013.

King, Bart. "Lego Owners Make Huge Investment in Offshore Wind Power." Sustainable Brands. N.p., 24 Feb. 2012. Web. 5 Oct. 2013.

Morse, Alyssa. "The Importance of Reducing a Carbon Footprint." Livestrong. N.p., 24 July 2010. Web. 5 Oct. 2013.

Slaper, Timothy F., PhD, and Tanya J. Hall. "The Triple Bottom Line: What Is It and How Does It Work?" The Indiana Business Review 86.1 (2011): n. pag. Web. 5 Oct. 2013.

"The Case for Social Enterprise Alliance." Social Enterprise Alliance. N.p., n.d. Web. 5 Oct. 2013.

The Lego Group. Annual Report 2012. The Lego Group. Web. 5 Oct 2013.

Vestberg, Morten. LEGO. The LEGO Group, n.d. Web. 5 Oct. 2013.

"Performance and Reporting"

"Product Safety"

"Safe Products"

"Smaller Boxes"

"Social Responsibility"